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Our latest post discusses Excel Maritime Carriers Ltd (EXM), Dry Ships Inc. (DRYS) and Star Bulk Carriers Corp. (SBLK), by Director of Zacks Equity Research Dirk van Dijk, CFA.
In the story of how the Great Depression happened, one of the main culprits is the Smoot-Hawley Tariff Act. It wasn't so much that the increased tariff revenues represented a tax increase to consumers of imported goods as much as it was the collapse of world trade that they caused.
Well, despite a few scattered calls for putting tariffs on Chinese goods if they do not let their currency appreciate, there has been no significant increase in protectionism so far [in the current global economic crisis]. However, we are seeing world trade collapse once again: China just reported that its exports were 2.2% lower in November than they were a year ago. In October, their exports were up 19.2% year-over-year, but their imports fell even further -- dropping 17.9% year-over-year in November after being up 15.6% year-over-year in October. Thus, the Chinese trade surplus actually rose to a record $40.1 billion for the month.
However, this is not just a Chinese story. Korea saw its exports plunge 18.3% year-over-year in November, while Taiwan saw a 23.0% drop.
Probably one of the best indicators of how world trade is going is the Baltic Dry Index, which measures how much it costs to charter ships that carry non-oil raw materials. The plunge there is simply stunning, to a current level of 691 from 11,409 just six months ago.
That's a 94% drop, folks. This is obviously a very negative development for shipping companies like Excel Maritime Carriers (EXM), Dry Ships (DRYS) and Star Bulk Carriers (SBLK). It is also a very bad omen for the world economy.
This recession is going to be longer and nastier than people think, and earnings expectations still have lots of room to fall across the board. While I find the large stimulus package (probably more than $500 billion) that Obama is planning to be a good sign, one has to question if even it will be enough in the face of hurricane-force headwinds facing the economy.
Read the full analyst report on EXM.
Read the full analyst report on DRYS.
Read the full analyst report on SBLK.
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